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Willowbrae aims to be McDonald’s of daycare

COLLEEN COSGROVE, Business Reporter
The [Nova Scotia] Chronicle Herald

Just as a big Big Mac in Alberta tastes the same as one purchased in Nova Scotia, W… Childcare Academy intends to offer parents coast-to-coast consistent and reliable service.

Halifax entrepreneur W C launched the flagship …. in Dartmouth in 2011; a year later, the daycare is doubling in size, three more are on tap to open in metro Halifax and 15 other locations are in the works across Canada and the United States.

“Our goal in the next 10 years is to open 100 locations,”… “We know we have a better brand and we’ve built a good investment model, so everyone wins. During our research three years ago, I didn’t see any one brand that could be the McDonald’s of the child-care industry, so we thought this was a great opportunity. That’s our role; that’s who we’ll be.”…

The … business model taps entrepreneur investors to finance the daycare, hire a facility director and an on-staff chef. Even the facility’s accounting and bookkeeping needs are outsourced….

“This is all so the director is truly focused on education and on the children and not be worrying themselves with meal plans and books,” ….

Why day care should be subsidized

The Review of Economic Studies /Oxford University Press Blog
By David Domeij and Paul Klein

The Nordic countries and France heavily subsidize pre-school child care. In Sweden, parents pay only about ten percent of the actual costs. As a result, about 75 percent of all Swedish children aged one to five are in formal day care. In Germany, where the availability of subsidized day care spots is strictly limited, that number is less than 60 percent, and those German children that are in day care typically spend only a few hours a day there unlike their Swedish counterparts who usually spend all day in a day care center. The consequences for female labour force participation are not surprising. In Germany, 58 percent of women with children up to the age of six were employed in 2004. The corresponding number for Sweden is 78 percent.

What is the case for subsidizing day care? Generally speaking, a market economy works best when the prices people face correspond to actual costs. If I pay in proportion to what I take out of the economy and I am rewarded in proportion to what I contribute, then I have an incentive to do what is best for the economy as a whole. However, the ideal market economy where all prices equal true (marginal) costs and incomes exactly reflect (marginal) contributions is not attainable in practice. Every society needs to fund some goods and services on a collective basis. To do this, the government has to levy taxes. As a practical matter, taxes are levied on income and consumption. So taxes inevitably distort choices by driving a wedge between the social benefit of working and the private reward from working. That’s a given. The question is not how to remove all distortions but how to minimize their damaging effects.

To see why day care subsidies should be part of a damage-minimization tax policy, consider an economy where people have to pay for day care out of their after-tax income. Suppose the pre-tax wage is €10 per hour and that the cost of day care is €2 per hour and suppose the income tax rate is 50 percent. For simplicity, consider a single parent who needs to buy one hour of child care for every hour that he or she works. The social benefit of working, net of real child care costs, is €8. The net reward, after taxes and day care costs, is €3. Thus the effective wedge is 5/8 or 62.5 percent. What is the effective wedge for people without small children? 50 percent of course. So, in this imaginary economy, the choices of parents with small children are more distorted than the choices of others.

There are strong reasons to think that such inequality of wedges is not a feature of the best possible tax system, the one that distorts as little as possible. To verify that properly, we need a mathematical model. But some well-informed intuition will do nicely for now. Presumably it is at least plausible that jellybeans and candy canes should be taxed at the same rate. Why not? So surely parents with young children should be taxed at the same effective rate as everybody else. In our little example, what would it take for the effective tax rate to be 50 percent for everyone? The answer is: a child care subsidy of 50 percent. Then the net reward for working would be €4 per hour or 50 percent of the benefit to society. This is of course not a coincidence. In general, to equalize wedges between people with and without small children, the thing to do is to subsidize it at the same rate as the marginal tax rate. Equivalently, day care expenses can be made tax deductible. Naturally, tax rates for everyone else will have to rise a bit to finance child care subsidies. But even when we take that into account, an equalization of wedges leads to a more efficient allocation of resources.

In the German context, there is another reason (beyond equalizing explicit tax wedges) to subsidize child care, namely that it encourages people to work who otherwise would have lived on social assistance. For single mothers in Germany, the incentives to work are particularly weak, and day care subsidies would strengthen those incentives. Meanwhile, encouraging people to move from living on social assistance into working for a living is good for the government budget, making child care subsidies cheaper for the public purse. We conclude that the best subsidy rate for Germany would be 50 percent.

Is formal day care good for children? The evidence is not entirely clear-cut, and many studies fail to find either positive or negative effects on outcomes later in life for children who went to day care. But a recent study by Havnes and Mogstad provides some very strong evidence that formal day care has been good for Norwegian children, especially for those from disadvantaged backgrounds. Gathmann and Sass find similar results for Germany. Thus there is no strong counterargument based on child development to the efficiency case for child care subsidies.

[David Domeij is associate professor of economics at the Stockholm School of Economics in Stockholm, Sweden. He received his PhD in 1998 from Northwestern University. In his research he has mostly focused on public finance and macroeconomics. Paul Klein is associate professor of economics at Simon Fraser University in Burnaby, British Columbia, Canada. He received his PhD in 1997 from Stockholm University. In his research he has mostly focused on public finance and macroeconomics. Their recent paper, “Should Daycare be Subsidized” has been made freely available for a limited time by the Review of Economic Studies journal.]

If they won’t listen to the experts, maybe they’ll listen to the accountants – Commercial child care doesn’t work. Even the accountants say so.

Hans Rollmann,The Independent.ca [Newfoundland and Labrador]

There are, in this world, some things that are so intuitive they shouldn’t require a commissioned study by a certified accounting firm to “prove”.

But, when certified accountants are commissioned and rise to the occasion, perhaps their reports will prevail where common sense, thus far, has not.

One such example is a report released in late October on the viability of commercial child care in this country. Commissioned by the Coalition of Childcare Advocates of British Columbia, it’s a report that this province needs to be paying attention to.

Commercial? Doesn’t. Work.

The Dragomir Report – Can Child Care Thrive in a Speculative Investment Environment? – cuts to the heart of one of today’s most vital policy questions, and an issue I’ve written about before. Does childcare work – achieve positive results for our children and our society – when operated commercially by the private sector according to free market principles?

The answer – according not just to many experts but now also according to Dragomir’s accounting analysis – is a resounding no.

What does this mean for us? Well it means we must, first and foremost, pay heed to the fact we are teetering on the edge of a very dangerous public policy precipice. The fact most of our provincial and federal governments allow commercial childcare to spread unchecked means the dangers highlighted in Dragomir’s report are growing steadily in this country. This is an issue that needs to be addressed sooner, rather than later.

In actual fact, as the report demonstrates, even commercial childcare providers don’t operate according to free market principles, because they rely on public subsidies – government money – to make their operations viable. Most parents can’t afford the outlandish fees charged by commercial providers, so government subsidizes those fees.

And that, according to Dragomir, and according to childcare researchers and advocates across the country – is simply not sustainable. Essentially, it’s transferring millions of dollars to private business owners; millions which could be much better spent building a no-fee public system (or a virtually no-fee public system, such as the overwhelmingly popular $5-a-day childcare system Quebec introduced in the 1990s. Even at its current $7-a-day level, it’s far more accessible than anything in the rest of the country).

The only way to make a profit off childcare, the report explains, is by doing one of two things: cram more children into smaller spaces with less supervision and access to learning activities, or increase fees to parents. The first option hits hard on the children, and results in a more dangerous and reduced learning environment. Not what we want for our children, is it? That’s why government regulates childcare so closely – thus preventing the sorts of cost-cutting, profit-making initiatives that might be used at Wal-Mart. The second option – higher fees – hurts parents. But more broadly, it hurts all of us. When fees go up, that means government comes under pressure to boost subsidies and help parents with the fees – and it usually does. So government winds up spending more money – which has to be diverted from other programs, like health care or education or any of a number of other already underfunded programs – not because there’s a legitimate need for more money to continue to provide the service, but simply because the private operators want to be able to make a larger profit.

When your childcare regime is reliant on private, commercial, for-profit operators, those operators have one of the most effective proverbial, metaphorical guns held to government’s head.

And that should not be acceptable to anyone.

Other risks

There are other dangers as well. When a significant proportion of your provincial childcare system comes under private commercial operator control, those private operations gain significant lobbying power. If they want to reduce staffing costs and increase the potential labour pool of trained childcare staff to draw from, for instance, they might pressure government to reduce the qualifications necessary to work at a childcare facility. They might pressure government to reduce the length of training courses, or the amount of ongoing training and skills childcare staff have to have. These are ways they can reduce the value and cost of the childcare staff they hire and pay for. Yet once again, the ones who pay the real cost – and who wind up hurting as a result – are the children. The lower the qualifications, training and skills of the staff looking after them, the more disadvantaged – and dangerous – the environment our children will be growing up in.

No matter which way you look at it, private, commercial, for-profit sector childcare provision does not make sense.

This isn’t to diss the private operators themselves. Many of them probably got into the business because they sensed a need for good childcare. And they were right – there’s a great need. The problem is, government should never have allowed the opening for private sector commercial childcare provision to emerge. So long as government continues to regulate the childcare learning environment – and regulate it they should, otherwise the safety and wellbeing of our children will be in danger – it is virtually impossible for a childcare system to thrive based on commercial private sector market principles (without endangering and negatively affecting the upbringing of our children).

Cautionary tales

One of the key case studies the report looks at is the fate of commercial child care in Australia. In that country, a private childcare company – ABC Learning Inc – managed to buy control of 25% of child care spaces in the country in the early 2000s. Having expanded too rapidly and aggressively, it then proceeded to collapse: threatening to smash a huge hole into the availability of childcare in that country. With more than a quarter of all childcare spaces under threat, the Australian government had to spend millions to prop the company up while it worked out a deal with the non-profit childcare providers for them to take over the failed private sector operation.

The spread of private, commercial childcare in Australia cost taxpayers a fortune…

The spread of private, commercial childcare in Australia cost taxpayers a fortune, and in more ways than one. Not only did the Australian government wind up on the hook for millions when the company failed, but it had been dishing out millions in subsidies to the company the whole way along. In fact shortly before its collapse, 44% of the company’s “profits” came directly from the Australian government! One is tempted to call such an operation not a ‘commercial venture’, so much as outright theft from the public purse.

Yup, that’s right. Private, commercial childcare almost caused the land down under to go under, in a manifestation of literary punditry which would have inspired clever, yet tragic, headlines.

That’s the extreme end of the spectrum, of course. Or perhaps not. Already there is one publicly traded commercial childcare company in Canada – Edleun Group – which is expanding in a way eerily similar to the Australian case. In fact, it’s the growth of that particular provider which inspired childcare advocates to commission the Dragomir study. But, they point out, the results of the study aren’t exclusive to Edleun: the results can be applied to “a commercial child care chain, whether a publicly traded company, as in this analysis, or another form of business ownership.”

What is to be done?

In Newfoundland and Labrador, the provincial government currently spends over $26 million on childcare, much of that going into the pockets of private operators in the form of subsidies.

It’s time for that to end, and for the provincial government to take on the urgently needed task of building a provincial, universally accessible, public childcare system. This is, recall, the province which last year ranked very poorly in a report on child care in Canada. As of now, our tax dollars – millions of them – are being funneled from the provincial treasury into the accounts of private commercial operators, running childcare facilities like businesses in a model which a growing array of research – like the Dragomir Report – are indicating is both unsustainable and dangerous. The provincial government ought to buy them out, end the subsidies, and redirect its money into building a viable province-wide public model.

Enough parents are struggling to find and pay for childcare as is. We can’t afford to waste yet more time and money on unsustainable commercial models. Let’s build a provincial public childcare system.

One we can all be proud of. One we can all access.

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Children Ahead of Profit

Our solution to BC’s child care crisis does not include the expansion of commercial child care chains.

Commercial child care chains are companies that own or franchise large numbers of child care programs. As with other commercial enterprises, their primary duty is to maximize the return on investment for owners, investors and shareholders. In our opinion, this is likely to put making a profit ahead of the needs of children and families!

Over and above the concerns raised by the primary duty of these chains, there is a considerable body of Canadian and international research that indicates that quality early care and learning programs are best provided through community based non-profit or public operations, not businesses.

CCCABC has long been concerned about the attempts by commercial child care chains to establish in BC. In 2007, when a foreign-based corporation actively but unsuccessfully tried to take over community-based child care providers, we launched the BC Child Care Not For Sale campaign.

Recently, we have been observing an increase in the number of child care chains looking for business opportunities here and in the rest of Canada. They are companies, with investors and/or shareholders, who own, want to own, or franchise, a large number of child care programs. Some promote their services to a particular clientele, for example, to employers as a response to the child care needs of employees for child care or to parents as early schooling for their children. These niche services appear to charge top-of-the-scale fees making them inaccessible to families with moderate incomes. Other companies appear to emphasize acquiring real estate and operating in well-to-do communities.

All seek to realize a profit or a return on investment. And, when and if a commercial child care chain fails (as in Australia) – families, communities and governments are left to pick up the pieces.

The CCCABC‘s position is that public funding should not go into profits for shareholders or investors. We have asked the BC Government to place a moratorium on new approvals of Child Care Operating Funding (CCOF) for commercial child care chains.

Mounting evidence supports the CCCABC position that relying on the market place is NOT the way to build a system that meets the needs of children, families, educators or communities.

Can Child Care Thrive in a Speculative Investment Environment?

In 2010, a group of child care centres in Alberta purchased by Edleun Inc. became the first commercial child care chain in Canada to list on the stock market, specifically the TSX Venture Exchange. This created considerable concern but it also provided an opportunity.

One concern was that Edleun appeared to be modeled on the Australian chain ABC Learning Inc. ABC’s rapid growth and subsequent failure caused havoc in that country – negatively impacting company investors; funders; the public purse; as well as access to and affordability of child care.

However, the fact that publicly traded companies must make a quantity of information available through the public reporting process was the opportunity. Such information might provide insight about the business approach typically used commercial child care chains and either support or refute the concerns about commercial child care chains.

The CCCABC decided that an analysis of the business model demonstrated by Edleun would be a useful and that it should be undertaken by someone familiar with the costs and constraints of delivering child care services in Canada. Gerry Dragomir, a Vancouver CMA was engaged. Dragomir’s company has knowledge and experience as public accountants working with the child care sector in British Columbia for the past 30 years.

Dragomir’s report Commercial Child Care in Canada: Can Child Care Thrive in a Speculative Investment Environment? is based on public information from government, the publicly traded child care chain, child care organizations, the public media and from information obtained by direct inquiry. His analysis provides information on the financial viability and sustainability of child care delivered via Edleun’s business model.

Can child care thrive in a speculative investment environment? Based on the analysis, Dragomir’s report concludes that the answer to this question is “not likely”.

The CCCABC has decided to make Dragomir’s report publicly available:
– Commercial Child Care in Canada: Can Child Care Thrive in a Speculative Investment Environment?
– Media Release
– Backgrounder

Income linked to kids’ health, school performance

CBC News

Children from lower income areas face a tougher road than children from higher income areas — and that inequality tends to increase as children go through school.

The findings are published in a report from the University of Manitoba’s Faculty of Medicine, which states children living in poorer neighbourhoods are generally less healthy, use more healthcare and social services, and have poorer outcomes in school when compared to children with better socioeconomic backgrounds.

The study, How are Manitoba’s Children Doing, published by the Manitoba Centre for Health Policy, looked at almost all Manitoba children aged 19 and under from 2000 to 2010.

It measured well-being in four areas: physical and emotional health; safety and security; education; and social engagement and responsibility….

“The rate of child deaths was over three times higher in the lowest income areas compared to the highest,” said lead author, Marni Brownell.

Highlights from the 10-year study period:
* 42 per cent of child deaths in rural areas occurred in the lowest income areas where less than one quarter of the child population lives.
* 47 per cent of child deaths in urban areas (Winnipeg and Brandon) occurred in the lowest income areas (where less than one-fifth of the child population lives)…

With each additional vulnerability identified in Kindergarten, the likelihood of not meeting expectations for reading and math increases in step-like fashion as the child gets older, the study found.

  • Among children with no vulnerabilities in Kindergarten, only 10 per cent did not meet expectations in Grade 3 reading and 20 per cent in Grade 3 math.
  • Among children with three vulnerabilities in Kindergarten, more than half did not meet expectations in reading and over 55 per cent did not meet math expectations by Grade 3.
  • Among children with five vulnerabilities, about 70 per cent did not meet either reading or math expectations when they got to the third grade.
  • Seeing as the gaps tend to increase as children progress through school, the early and middle years of childhood may present opportunities for programs and interventions to reduce those gaps, Brownell said……

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